Sanctions on Iran: Bark or bite?

The current effort by the regime to save money by cutting subsidies might in fact expose a domestic Achilles heel.

Iran nuclear talks.
(photo credit:Associated Press)

US Secretary of Defense Robert Gates recently said that the sanctions imposed on
Iran “are biting more deeply” than the Iranian regime anticipated. So far, they
have forced Iran to examine the costs and benefits of its behavior, but have not
led to any greater flexibility in its position on nuclear
development.

Some argue that the sanctions have even led Iran to harden
its stance.

Recent domestic developments, however, suggest that the
sanctions’ bite is growing stronger.

Though it is difficult to determine
by exactly how much, the sanctions have taken a toll on government revenue. As a
result, the regime has announced plans to reduce the subsidies it provides the
population, which cost the treasury up to $100 billion per year (25% of
GDP).

These cuts and the public’s response to them have the potential to
pose a considerable challenge to the status of the regime, and even to its
stability.

The anticipated result is a significant rise in the prices of
cooking gas, electricity, water, foodstuffs and
transportation.

Especially important is the expected rise in gas prices.
While gasoline will remain very cheap relative to the rest of the world,
previous efforts to reduce government subsidies (through rationing) resulted in
public resentment, demonstrations and the burning of gas stations.

In the
current political environment, it is likely that the opposition will exploit
these economic “reforms” to gain support – a possibility for which the regime is
preparing. Among other things, the regime in recent weeks deposited funds into
the bank accounts of approximately 70 million Iranians as preemptive
compensation for the expected price hikes.

Iran has invested great effort
trying to cope with the various sanctions imposed on it since 2006. On the one
hand, these efforts suggest that the country is vulnerable to sanctions. On the
other, they also show that it is committed to advancing its nuclear program even
at high cost.

This month, in an unusual step, Supreme Leader Ali Khamenei
asked the Iranian people to be patient so the country could overcome the
problems it is facing as a result of the sanctions.

IT APPEARS that the
West has not decided yet what price it is willing to pay in order to prevent
Iran from crossing the nuclear threshold; the UN Security Council sanctions
represent the lowest common denominator.

Nevertheless, the sanctions are
meaningful.

The Security Council resolution has provided legitimacy to
states that have taken actions against Iran above and beyond what is required,
and which otherwise would not have been taken at all. Additionally, more
reluctant actors, like Russia and China, have been supportive of sanctions
despite their reservations because until diplomatic efforts have been exhausted,
war remains a more distant option.

The sense in the West that there are
“no good options” and that the sanctions have exhausted their potential is
perhaps premature. The current effort by the regime to save money by cutting
subsidies – a step unprecedented since the 1979 Islamic Revolution – in fact
might expose a domestic Achilles heel.

That is, the regime’s efforts to
mitigate the effects of the sanctions could leave it even more vulnerable to
them.

The most effective way to further constrain Iran’s financial
resources is by continued and even increased pressure on the country’s limping
energy sector, which accounts for 80% of export-related state
revenue.

Taking advantage of this dependence on a single commodity has
the greatest potential to change Iran’s cost-benefit calculations.

As is
always the case, multidimensional problems demand multidimensional solutions.
Sanctions by themselves are unlikely to put an end to Iran’s nuclear program. It
is in this context that recently reported sabotage of uranium enrichment
activity should be seen; this activity makes enrichment more costly and
complements sanctions by giving them more time to work. At the same time,
Western efforts – strongly encouraged by Iran’s Arab neighbors, as evident in
the documents revealed by WikiLeaks – to present a credible military threat to
Iran’s nuclear facilities are intended to convince the Islamic Republic that
time is not on its side.

One could conclude from Iran’s actions that it
is not particularly interested in compromising with the West, in part because it
continues to prepare to weather sanctions for an extended period.

Only if
the regime decides that the road to completing its nuclear program is too long
and the price too high will there be even a chance of increased flexibility in
its position.

The writers are research fellows at the Institute for
National Security Studies at Tel Aviv University.